Bessent on AI, Hollywood Shaken by Tariff Threat | Bloomberg Technology

Key Concepts

• Tariffs: Taxes imposed on imported goods.
• Trade War: Economic conflict where countries impose tariffs or other trade barriers on each other.
• National Security: Justification used for imposing tariffs, citing threats to a country's security.
• Tax Incentives/Credits: Government measures to encourage domestic production through tax reductions.
• Deregulation: Reducing or eliminating government regulations to stimulate economic activity.
• Re-industrialization: Efforts to revive domestic manufacturing and industrial sectors.
• Economic Partnership: Agreements between countries to foster trade, investment, and shared prosperity.
• SLR (Supplementary Leverage Ratio): A capital requirement for banks, impacting their ability to participate in the Treasury market.
• Non-Inflationary Growth: Economic expansion without a significant increase in inflation.
• American Dream: The ideal of equal opportunity and upward mobility for all Americans.
• AI (Artificial Intelligence): The development of computer systems that can perform tasks that typically require human intelligence.

Trade and Tariffs

• Trump's Proposed Movie Tariffs: President Trump announced plans to impose 100% tariffs on movies produced overseas, aiming to incentivize movie production in the U.S.
  • Justification: Potentially invoking national security concerns to justify the tariffs.
  • Industry Reaction: The movie industry was caught off guard, with analysts predicting potential devastation.
  • Motivation: Driven by a desire to bring movie production back to the U.S., potentially influenced by movie moguls seeking tax credits.
  • Counterarguments: The U.S. is a net exporter of movies, and tariffs could harm the industry.
• Impact on Netflix: Tariffs could affect companies like Netflix, which produces content overseas.
• Broader Trade Concerns: Tariffs are extending to different industry groups, with technology and chips being heavily affected.
• U.S. vs. Other Countries: Countries like Australia, New Zealand, the U.K., and Canada have attracted film and TV production by offering tax incentives and lower costs.
  • U.S. spending on film and TV production fell 28% between 2021 and 2024.

Market Reaction and Individual Companies

• Market Sentiment: Markets are on edge due to trade concerns, particularly surrounding the media industry.
• Apple vs. Microsoft: Microsoft surpassed Apple as the largest U.S. company by market value.
  • Apple's Challenges: Apple faces challenges, including a lack of a compelling AI personal assistant and reliance on the Pacific Rim for production.
  • iPhone revenues were only up about 2% in the recent quarter.
• Pelletier: Data center was up 10%.

Treasury Secretary Scott Bessent at the Milken Conference

• Trump's Economic Agenda: Bessent outlined President Trump's economic agenda, emphasizing trade, tax cuts, and deregulation as interlocking parts to drive long-term growth.
  • Goal: To level the playing field for American workers and companies, encouraging investment in the U.S.
  • Tariffs as Incentive: Tariffs are intended to encourage investment in the United States.
• Tax Legislation: The President's tax legislation aims to prevent a tax hike by making the small business deduction permanent and streamlining investment in high-tech operations.
  • It will restore 100% expensing for equipment and expand that incentive to new factory construction.
• Deregulation Agenda: An ambitious deregulation agenda includes expansive permitting reform to accelerate investment.
  • Executive orders aim to reduce the permitting process to just a few months.
• Energy Dominance: Energy is seen as the base layer of all economic activity, and the administration aims to lower energy costs.
• America First: Bessent argued that "America First" is a blueprint for a more abundant world.
• Investment in the U.S.: Bessent claimed that President Trump has secured more investment for the country in 100 days than President Biden did during all four years.
• "Never Bet Against America": Quoting Warren Buffett, Bessent emphasized the resilience of the U.S. economy and encouraged investment in America.
  • "The entire history can be distilled into five words. Up and to the right."
• Public Service Motivation: Bessent stated his desire to serve the country and address budget deficits.
• China Trade Relations: Bessent suggested the possibility of a "big deal" with China for rebalancing trade, where China increases consumption and the U.S. gains better trade terms.
• Ukraine Economic Partnership: Bessent discussed the historic economic partnership with Ukraine, initiated by President Trump.
  • Objectives: To create leverage with Russia, reassure the Ukrainian people, and provide a tacit security guarantee.
  • Negotiation Process: Bessent traveled to Kyiv to negotiate the agreement, which was initially a four-page memorandum of understanding but evolved into six different agreements after a "blowup" in the Oval Office.
  • The final agreement is a 50/50 equity partnership, not a "loan to own" deal.
• Financial Deregulation: Bessent highlighted Treasury's lead in financial deregulation, particularly in private credit.
  • He noted that the growth of private credit indicates that the regulated banking system has been too tightly constrained.
  • The regulators are aligned to be safe, sound, and smart in redoing regulated financial entities.
• Permitting Reform: The real impetus for deregulation will be on permitting across all industries, with the EPA putting pressure on state and local governments.
• AI and Quantum: Bessent emphasized the importance of winning in AI and quantum computing, stating that "if we don't win, everything else doesn't matter."
• Interest Rates: Bessent focused on creating the best environment for stable rates and taking away the credit risk of the U.S. government.
  • He aims to achieve Trump 1.0 non-inflationary growth.
• Government Spending: Bessent aims to decrease the deficit by 1% a year and rightsize government spending and employment.
• American Dream: Bessent defined the American Dream as equal opportunity for great outcomes and the belief that the system works.

BNY CEO Robin Vince at the Milken Conference

• Client Concerns: Clients are asking about the difference between tariffs and trade policy, deregulation, and the overall strategy.
• De-risking from the U.S.: Some clients in Europe are considering de-risking from the U.S.
• Treasury Market Liquidity: Vince acknowledged reduced liquidity in the Treasury market but emphasized that it was still functioning.
  • He noted that a 7% deficit is not a long-term tenable situation.
• Faith in the U.S.: People are questioning faith in the U.S., dollar supremacy, and the rule of law.
• SLR Reform: Vince supports SLR reform to ensure the deepest, most liquid market in the Treasury market.
• Deficit Reduction: Vince emphasized the importance of deficit reduction through tax measures or economic growth.

Conclusion

The broadcast covers a range of economic and market issues, from the potential impact of tariffs on the movie industry to the broader implications of President Trump's economic policies. Treasury Secretary Bessent's remarks at the Milken Conference provide insights into the administration's goals for trade, tax cuts, deregulation, and re-industrialization. The discussion with BNY CEO Robin Vince highlights concerns about Treasury market liquidity and the need for regulatory reform. The overall tone suggests a period of uncertainty and potential disruption, but also a belief in the resilience and long-term potential of the U.S. economy.